Is the individual mandate in the PPACA enforced by a tax or a penalty on those who forgo insurance?

Jonathan Cohn's extended defense of the constitutionality of the individual mandate in the Affordable Care Act makes me nervous.  

That's not because I don't agree 100% that the authority to impose such a mandate is essential to providing near-universal insurance and holding down costs. It's because, of the two chief legal arguments in favor of the mandate -- one relying on Congress's power to tax, the other on Congress's power to regulate interstate commerce -- Cohn seems to lean heavily on the power to tax.  The PPACA is

defensible on constitutional grounds—starting with the power to tax, the same authority that undergirds Social Security and its health insurance analogue, Medicare. With Medicare, the government demands that people help finance the cost of society’s medical treatment through payroll taxes. With the Affordable Care Act, the government demands that people help finance the cost of society’s medical treatment either by paying for a reasonably comprehensive insurance policy or writing a check to the government. The form of the payments is different but, argue the act’s defenders, the basic concept is the same.

The applicability of that power depends on convincing judges that the sum paid by those citizens who can afford health care insurance but choose not to buy it is in fact a tax, not a penalty. And one Federal judge who has strongly upheld the mandate on the basis of the Commerce clause in the Constitution also quite definitively rejected the argument that the cost imposed on those who choose not to buy insurance is a tax.

The judge, Norman K. Moon in the Western District of VA., in Liberty University v. Timothy Geithner, rejected the argument that the mandate is enforced by a tax rather than a penalty. He did so on dual grounds: because the bill itself dubs the required payment a "penalty" in most instances, and because substantively, "the assessments function as regulatory penalties -- they encourage compliance with the Act by imposing a punitive expense on conduct that offends the Act" (p. 20). That, to Moon's thinking, places the mandate under the rubric of "penalty" as defined by the Supreme Court in various cases, including Dep't of Revenue v. Kurth Ranch (1994): "Whereas fines, penalties, and forfeitures are readily characterized as sanctions, taxes are typically different because they are usually motivated by revenue-raising, rather than punitive, purposes" (p. 19).


Moon did uphold the individual mandate as falling under Congress's power to regulate commerce, leaning heavily on a case mentioned by Cohn, the Supreme Court decision in Wickard v. Filburn . Here, the Court ruled that a federal law imposing a penalty on wheat production over quota could be enforced against a farmer growing wheat for his own use, because by eliminating his own need to buy wheat on the open market, the farmer was undermining the statute's purpose to control wheat prices. Similarly, with regard to the individual mandate, Judge Moon found that individuals' "inactivity" in a market (e.g., not buying wheat) affects that market and so could impair Congress's rightful attempts to regulate that market:

I hold that there is a rational basis for Congress to conclude that individuals’ decisions about how and when to pay for health care are activities that in the aggregate substantially affect the interstate health care market…Nearly everyone will require health care services at some point in their lifetimes, and it is not always possible to predict when one will be afflicted by illness or injury and require care…Far from ‘inactivity,’ by choosing to forgo insurance, Plaintiffs are making an economic decision to try to pay for health care services later, out of pocket, rather than now, through the purchase of insurance. As Congress found, the total incidence of these economic decisions has a substantial impact on the national market for health care by collectively shifting billions of dollars on to other market participants and driving up the prices of insurance .policies..The conduct regulated by the individual coverage provision is also within the scope of Congress' powers under the Commerce Clause because it is rational to believe the failure to regulate the uninsured would undercut the Act's larger regulatory scheme for the interstate health care market ”  (pp. 27 and 29).

Those who admire Judge Moon's reading of the commerce clause should take equal note of his finding on the tax-versus-penalty question, delivered with the same admirable clarity (albeit admitting that "the distinction [between tax and penalty] is not always easy to draw").  On Cohn's two-legged stool, one leg looks pretty wobbly.